S Corp Election

Jason Watson, CPA, of WCG Inc. (formerly the Watson CPA Group) with Amanda Rowles and Joseph Bassett discuss the S Corp tax benefits versus the garden-variety LLC. The S Corp vs LLC discussion starts with general S Corp benefits, but does a deeper dive into reducing self-employment taxes and lowering audit rate risk.

They also review the Does It Make Sense questions such as-

Does your business earn over $30,000 net income after expenses? Say Yes.

Are you located in New York City or Tennessee where S corporation tax rates are egregious and suck up all the federal tax savings? New Hampshire? Say No. Although there might be exceptions where an S Corp makes sense NYC, TN and NH in order to maximize Section 199A deduction benefits.

Do you have other W-2 income that exceeds or comes close to exceeding the Social Security limits of $132,900 (2019)? Say No. If you say Yes, we need net business income to exceed $200,000 in #1 above so that the Medicare savings exceeds the “lost” Social Security tax paid by the S Corp.

Is this a going concern? In other words, is the business going to continue to earn the same income or more each year? Say Yes.

Do you have an LLC or some other entity in place that can be elected to be taxed as an S Corp? Say Yes. If you say No, we have options just not elegant ones such as shelf corporations.

Do you have other partners besides a spouse… business partners, that is? Say No. If you say Yes, are you currently splitting income based on ownership percentages or some formula? If you say Formula, then we’ll need to explore a multi-entity arrangement.

Does your entity own any appreciating assets such as real estate? Say No. We don’t put appreciating assets into an S corporation. Holding companies own real estate and operating companies elect S Corp status. Chinese Wall.

The episode concludes with how to file the S corporation election, Form 2553, etc.

This material is based on content from our website and our book, Taxpayer’s Comprehensive Guide to LLCs and S Corps.

https://wcginc.com/wp-content/documents/SCorpQuestions.pdf

https://wcginc.com/s-corp-election/

https://wcginc.com/book

Thank you!

Warm Regards,

WCG Inc. (formerly Watson CPA Group)
2393 Flying Horse Club Drive
Colorado Springs, CO 80921

719-387-9800 phone
719-345-2100 text message
855-345-9700 fax

https://wcginc.com/

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